India Australia Economic Cooperation and Trade Agreement (IndAusECTA)

In News

• Recently, the IndAusECTA Agreement, which was signed last year, has come into force after Ratification and Exchange of Written Instruments.

Major Areas of IndAusECTA

• Trade in Goods
• Trade in Services
• Rules of Origin
• Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) measures
• Customs Procedures and Trade Facilitation
• Trade Remedies
• Legal & institutional Issues
• Movement of Natural Persons

Current Trade trends between India and Australia

• Imports:
  • India’s imports from Australia amount to 17 US $ billion India’s imports from Australia are primarily (96%) raw materials & intermediate goods.  
  • They are highly concentrated in Coal (74% of Australia’s exports to India) out of which 71.4% is coking coal. 
• Exports:
  • India’s exports to Australia amount to 10.5 US $ billion. 
  • India’s exports to Australia are broad-based and dominated by finished products (consumer goods). 
  • India also spends $ 4 bn approx. each year on education of students in Australia.

Benefits for India

• Benefits under Trade in Goods:
  • Indian goods on all tariff lines to get access to the Australian market with zero customs duty (currently subjected to 5% import duty by Australia). 
  • Immediate duty-free access covers all labour-intensive sectors such as Textiles and Apparel, Agricultural and Fish products, Leather, Footwear, Furniture, many Engineering Products, Jewelry and select Pharmaceuticals. 
  • Cheaper Raw Materials, Faster Approval for Medicines
  • Immediate Duty-Free Access is projected to potentially create 10 lakh jobs in India and additional exports of $ 10 bn from India to Australia in the next five years.
  • India has offered concessions on Tariff lines of export interest to Australia like Coking coal and Thermal coal, Wines, Agricultural products – 7 of them with TRQ (Cotton, Almonds shelled and in shell, Mandarin, Oranges, Lentils, Pear), Metals (Aluminium, Copper, Nickel, Iron & Steel) and Minerals (Manganese Ore, Calcined Alumina). 
  • Exceptions: Many sensitive products such as milk and other dairy products, wheat, sugar, iron ore, apple, walnuts and others, have been kept in India’s Exclusion list.

• Benefits under Trade in Services:
  • Australia has committed its schedule in the negative list and has also made wide-ranging commitments in around 135 sub-sectors with Most Favoured Nation (MFN) status in around 120 sub-sectors.  
  • India has for the first time agreed to Negative listing after 5 years of coming into force of the Agreement.
  • India is also making a commitment to Australia in around 103 Service Sub-Sectors with Most Favoured Nation status in around 31 Service Sub-sectors for the first time. 
  • The Agreement opens avenues for investment in computer related services, telecom, construction, health & environmental services. 
  • More than 1 lakh Indian students in Australia will benefit from post-study work visas (18 months – 4 years).
  • The Agreement provides for an Annual Quota of 1,800 for Yoga teachers and Indian Chefs. 
  • It makes an arrangement for Work and Holiday Visas for young professionals.
  • Commitments have also been made to pursue Mutual Recognition Agreements (MRAs) in professional services in 12 Months.
• Protective Features to guard against Unintended Consequences:
  • The #IndAusECTA also has certain ‘protective features’ aimed at guarding both countries against unintended consequences on trade.
  • Stringent Rules of Origin – 
    • Value Addition of 35% + Change in Tariff Subheading (CTSH)
    • In calculation of Value Addition, 2 different values agreed to (35% or 45%) depending on method of calculation (based on whether profit is excluded or included)
  • Product Specific Rules negotiated for 807 products
    • Requirement of ‘melt and pour’ for iron & steel products included in the Product Specific Rules for these products.
  • Strict Operational Customs Procedures
    • A specific clause included to ensure only items made in Australia count for value addition, no other country products
    • A Bilateral Safeguard Mechanism will be available for 14 years in case of surge in imports:
  • A special clause on Review has been agreed upon to enable either country to request a Review for parts of the Agreement which may be a cause of concern, after 15 years
    • Review compulsory if requested (it shall happen)
    • Must be completed in 6 months
• End to Double Taxation:
  • A provision in the Double Taxation Avoidance Agreement (DTAA) was used to tax this remittance.
  • However, the Agreement has removed the discrepancies with regard to use of DTAA for taxation of Indian firm royalties, fees and charges.
  • Australia has no domestic provision for charging tax on royalties, fees and charges by firms sending these to parent companies. 

• Boost to Economy:
  • Exports are expected to increase by 10 billion by 2026-27 with a creation of approximately 10 lakh jobs. 
  • The total bilateral trade is expected to cross US $ 45-50 billion by 2035. 
  • The coming into force of the India Australia ECTA is expected to consolidate and help in the growth of market share of Indian products and services. 

Way Ahead

• There is a lot of potential for exporting finished goods to Australia, since they hardly manufacture anything, they are largely a raw material and intermediate producing country. 
• India can get cheaper raw materials which will not only make India more competitive globally but also enable it to serve Indian consumers better; enabling it to provide more quality goods at more affordable prices
• Ind – Aus ECTA brings together two major economies of the world, – India the 5th largest economy and Australia the 14th largest economy. 
• The trade between the two countries is hugely complementary, this offers opportunities on both sides and will pave the way for a win-win solution for both India and Australia.

Source: PIB